International Financial Management: INBU 4200 Fall Semester 2004
Background on the Turkey and the Lira During the decade of the 1990s, Turkey experienced hyper inflation. The CPI peaked at 106.3% in 1994.One of the consequences of this hyper inflation was a severe depreciation of the country’s currency, the Turkish Lira. From an average of 9 Lira per US Dollar in the late 1960s, the currency came to trade at approximately 1,650,000 per US Dollar in late 2002 and early 2003. - Now trading around 1,500,000
Turkey’s Rates of Inflation: CPI 1991 66.0% 1998 84.6%1992 70.1% 1999 64.9%1993 66.1% 2000 54.9%1994 106.3% 2001 55.4%1995 88.1% 2002 45.0%1996 80.3%1997 85.7%
Lira: 1991 - 2004
Lira Today Lira is the world’s smallest valued unit of currency.
One lira worth approximately 0.000000743971 US dollars! - A chocolate bar can often cost more than a million Lira!
20,000,000 Lira banknote
The Government has announced the introduction of a new currency to replace the old Lira.The new currency, the New Turkish Lira will be issued on January 1, 2005.- It will be equivalent to 1,000,000 old Turkish Lira, or
- One New Lira will be worth one million old ones
Relatively high rates of inflation result in weakness (depreciation) of a country’s currency on foreign exchange markets.
Theoretical explanation for this relationship, is the Purchasing Power Parity model.
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